Car finance compensation payments delayed until next year
Millions could be entitled to compensation as a result of commission arrangements between lenders and dealers.
Key points
- The FCA has delayed car finance compensation payments until 2027 because of legal challenges to its scheme.
- About 12 million car loans from April 2007 to November 2024 are covered, with average payouts of £829 and total costs possibly reaching £9.1bn.
- Three lenders have challenged the scheme, and a tribunal hearing is set for 16 to 26 February 2027.
The Financial Conduct Authority (FCA) has confirmed that compensation payments for mis-sold car finance will not be made before 2027 due to legal challenges. The regulator's scheme covers about 12 million car loans taken out between April 2007 and November 2024, with average payouts expected to be around £829 per agreement.
The total cost of the compensation, including administrative costs, could reach £9.1bn. The FCA banned discretionary commission arrangements in 2021, where dealers received commission from lenders based on the interest rate charged to customers, often without their knowledge.
Legal challenges delay payments
The UK's Upper Tribunal will hear legal challenges to the scheme from 16 to 26 February 2027. Three lenders - Volkswagen Financial Services, Mercedes Benz Financial Services, and Credit Agricole Auto Finance - have brought challenges. Until the legal process concludes, lenders will not need to calculate or pay compensation.
The FCA said it would defend the scheme robustly as lawful and the best way to resolve the issue. Without a scheme, the FCA estimated up to 19 million complaints would need individual handling, taking three years and costing lenders £6bn more.
many law firms out there who would like to get 30% of any compensation
— Nikhil Rathi
What consumers should do
Complaints have already been made about four million finance agreements. Those people do not need to do anything. The FCA urged anyone who has not yet complained to contact their car loan provider directly, rather than using a third-party claims management company.
The regulator warned that claims management companies and law firms should not charge excessive fees. FCA boss Nikhil Rathi told the BBC's Today programme there are "many law firms out there who would like to get 30% of any compensation", stressing that the regulator's scheme was "free to use" for consumers.
Motorists have also been warned to be alert for scammers posing as car finance lenders offering fake compensation. Those who complain before the scheme starts are likely to receive compensation faster.
